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On November 1, 2012, shares of MEI Pharma (MEIP) closed at 39 cents on a miniscule volume of 6,900 shares traded. One week later, on November 8, the company's shares had rose to $1.24. Volume on that day increased over 100-fold to 772,800 shares changing hands. By November 15, MEIP closed at $1.52. per share, with 922,139 shares traded.

What is all the excitement about?

MEI Pharma is focused on the clinical development of pracinostat. Three months ago, MEI Pharma acquired exclusive worldwide rights for a number of histone deacetylase (HDAC) inhibitors, including pracinostat by issuing $500,000 of the company's common stock to S*BIO Pte Ltd., a Singapore-based privately held biotechnology company. The agreement also includes potential success-based clinical, regulatory and sales milestone payments of up to $75.2 million, as well as small contingent earn-out payments based on net sales.

On November 5, MEI Pharma announced that several venture capital firms, Vivo Ventures, New Leaf Venture Partners, RA Capital Management and Three Arch Opportunity Fund, would provide $27.5 million in private financing to enable the San Diego-based microcap to have the funds necessary to get pracinostat into clinical trials.

"We believe that pracinostat has the potential to become a best-in-class compound and that MEI Pharma's management team is equipped with the drug development expertise to secure marketing approval and realize its significant market potential," said Albert Cha, a managing partner at Vivo Ventures.

On November 6, Daniel P. Gold, Ph.D., MEI's Pharma's President and Chief Executive Officer of MEI Pharma announced that preliminary data from a pilot Phase II clinical trial of pracinostat, in combination with azacitidine (Vidaza) in patients with advanced myelodysplastic syndrome (MDS) were "particularly compelling given that most patients in the study had treatment-related MDS and expressed high-risk cytogenetic abnormalities, both of which carry a poor prognosis. With these data in hand, combined with the capital raise we announced yesterday, we expect to be in a position to rapidly advance to the next stage of development and initiate a randomized Phase II trial of Pracinostat in combination with azacitidine in patients with MDS by the second quarter of next year."

Pracinost inhibits HDACs. HDACs belong to a larger set of proteins collectively known as epigenetic regulators that can alter gene expression by chemically modifying deoxyribonucleic acid (DNA) or its associated chromosomal proteins. Abnormal activity of these regulators is believed to play an important role in cancer and other diseases. There are currently two HDAC inhibitors, one oral and one injectable, approved by the US Food and Drug Administration (FDA) for the treatment of cutaneous T-cell lymphoma (CTIC). The FDA approved Zolinza (vorinostat) manufactured by Merck (MRK) in October 2006 and Istodax (romidepsin) manufactured by Celgene (CELG) in November 2009 to treat CTIC.

Pracinostat has also shown evidence of single-agent activity in multiple clinical trials, including advanced hematologic malignancies such as MDS, acute myeloid leukemia and myelofibrosis. Pracinostat has also demonstrated pre-clinical activity in hematologic disorders and solid tumors when used alone or in combination with a wide range of therapies in laboratory studies. According to MEI Pharma, pracinostat has been tested in multiple Phase I and exploratory Phase II clinical trials, including advanced hematologic malignancies such as MDS, acute myeloid leukemia and myelofibrosis. The company expects to initiate a randomized Phase II trial of Pracinostat in combination with azacitidine in patients with MDS by the second quarter of 2013.

MDS are a group of diseases that cause immature blood cells to accumulate in a person's bone marrow that results in a shortage of mature red blood cells, white blood cells, and platelets. The mature blood cells that are made may also be defective.

MDS is not cancer, but about 30% of the time the syndromes are a precursor to leukemias such as acute myeloid leukemia (AML) and chrome myelomonocytic leukemia (CMML), approximately 30% of the time.

Historically, disorders in the myelodysplastic syndrome (MDS) group have been referred to as "oligoblastic leukemia," "refractory anemia,." "smoldering acute leukemia," or "preleukemia." Since most MDS patients do not get leukemia, these terms are inaccurate and are no longer used.

MDS predominately strikes older adults. More than 80% of patients are over 60 years old. MDS is believed to affect between 10,000 and 30,000 people in the United States each year.

GlobalData estimates that the global MDS market was valued at $652.6m in 2010 and forecasts it to grow at a Compound Annual Growth Rate (OTCPK:CAGR) of 12.2% to reach $1.5 billion by 2017. This growth forecast is primarily attributed to the currently approved drugs reaching their peak sales during the forecast period and secondarily due to a strong pipeline. The existing market is strong although GlobalData found there is still a high unmet need. The market is represented by three FDA-approved drugs Vidaza (azacitidine) and Revlimid (lenalidomide) manufactured by Celgene and Dacogen (decitabine) manufactured by Eisai.

GlobalData identified the key MDS market players as Amgen Inc (AMGN), Arno Therapeutics (OTCQB:ARNI), Array Biopharma (ARRY), Cyclacel Pharmaceuticals Inc, (CYCC), Medac GmbH, Novartis AG (NVS), Onconova Therapeutics, Sanofi-Aventis (SNY), Synta Pharmaceuticals (SNTA), S*BIO Pte, and Telik Inc. (TELK).

GlobalData found that the myelodysplastic syndrome market has high unmet needs, which implies that the market is not well served by the current products in terms of efficacy and safety, and that there is high potential for new entrants. MDS therapies are largely chemotherapeutic agents that are given intravenously. GlobalData found the MDS market is expected to be a relatively open market for new entrants until 2017 with many opportunities for value capture.

In addition, MEI Pharma is developing two drug candidates derived from its isoflavone-based technology platform, ME-143 and ME-344. Results from a Phase I trial of intravenous ME-143 in heavily treated patients with solid refractory tumors were presented at the American Society of Clinical Oncology Annual Meeting in June 2012. A Phase I clinical trial of intravenous ME-344 in patients with solid refractory tumors is ongoing.

History

MEI Pharma was formerly known as Marshall Edwards, Inc. (MSHL). In June 2010, Marshall Edwards shares plummeted after the company reported that its ovarian cancer drug, phenoxodiol, did not meet its primary endpoints in a late-stage trial. In June 2012, the company changed their name to MEI Pharma.

Finances

As of September 30, 2012, the Company had no revenue sources, an accumulated deficit of $87.6 million and available cash and cash equivalents of $3.7 million.

MEI Pharma incurred losses of $2,464,000 and $1,612,000 for the three months ended September 30, 2012 and 2011, respectively.

As of September 30, 2012, the company's existing cash balances were approximately $3.7 million. On November 4, MEI Pharma announced that the company had obtained commitments to purchase $27.5 million of its common stock and warrants in a private placement.The financing was led by new investors Vivo Ventures and New Leaf Venture Partners with participation from additional institutional investors, including RA Capital Management and Three Arch Opportunity Fund, among others.

Conclusion: Hold

Although pracinostat's prospects certainly look promising, I believe the recent, dramatic gains are premature and bloated. I think a pullback is likely once the initial excitement over the financing and clinical trial news fade.

Investors should remember that a 2011 Biotechnology Industry Organization (BIO) Industry Analysis and BioMedTracker (BMT) study found the overall success rates from Phase I to FDA approval is only around 9%. The study also found that large molecule drugs are twice as successful in gaining approval than small molecule drugs.

The last big drug Marshall Edwards/MEI investors got excited about was phenoxodiol. On May 21,2010, one week before the news that phenoxodiol failed in a clinical trial, the company's stock was selling for $4.40 a share with only 400 shares trading hands. On June 1, the day the bad news broke, volume rose to 644,800 shares traded and the stock plummeting to $2.00 a share. By December 31, 2011, the excitement was over. The stock was selling at 97 cents a share on a volume of 3,700.

Hopefully, history does not repeat itself.

Source: What Is So Exciting About MEI Pharma?